Research On The Relationship Of Corporate Governance, Decision To Divest And Divestment Performance

In response to limited resources and the pressure for rapid change of business environment, the corporates need to restructure constantly to improve the efficiency of their business. In 1980s, business restructuring began prevailing in Europe and America, also divestment and M&&A(mergers and acquisitions) were considered as one of the main modes of business restructure. In recent years, whether abroad or at home, the number and size of divestment continued to keep sustainable growth. Especially since 2007, the market environment has changed dramatically with the subprime mortgage crisis, stock market volatility, industry recession, enterprises as the market entities have been in a very disadvantageous position. However, compared with the acquisition, divestment has not been paid the attention it deserves for a long time whether in theoretical research and practical industry. Usually most corporates are ready to buy assets, rather than divest assets. Theoretical and empirical studies on M&A are very rich, while studies on divest are few. The extant domestic studies in divestment are mainly to introduce the State-owned enterprises to divest non-operating assets, which is not inconsistent with the concept of foreign scholars' study, or focuses on the causes and outcomes of divestiture. A premise of existing research is although many corporates need to restructure, especially for a long-term low performance of business units, but even more conducive to divest for the long-term development, the practice of most of executives do not want to reduce or adjust their business by divesting. And even if divestment occurs, the corporate performance does not be improved significantly. Therefore, as the important strategic action to adjust its strategic direction whether the divestment occurred and really conducive to development of the corporate, are greatly affected by organizational context and the impact of management behavior. Extant researches on divestiture from organizations context and the impact of managerial behavior are rare, and combined with the relevant theory and practice to make empirical research on the decision to divest and long-term performance is more rare. Corporate governance as the institutional arrangements to secure manager be responsible for resources contributors, determines the strategic decisions and the results of implement. Therefore, research on corporate governance and divestment, in particular, whether there are relationships between governance and the decision to divest and on the relationship between governance and improvements of divestment performance needs to be further.Based on this consideration, this study attempts to collect a large number of data and information from domestic securities markets in corporate governance and asset divestment, and to use more sophisticated domestic and international academic research as the basis of the theoretical model and statistical analysis to provide a lot of empirical evidence for analysis of the relationship between corporate governance and divestment of Chinese listed corporates and to provide some relevant proposals. To achieve these objectives, the study examined the following main issues:â‘ Will corporate governance affect the initiation of divestment?â‘¡Divestment bring any positive performance?â‘¢Divestment performance can be affected by corporate governance?To solve the above problems, this study is divided into three parts. Choosing he domestic listed corporates in Shanghai and Shenzhen Stock Exchange as research objects, this dissertation analyzes the relationships of corporate governance, decision to divest and divestment performance. Based on the existing studies, the Binary Logistic regression model is constructed to analyze the effects of ownership concentration, the controlling shareholder, managerial ownership, managers turnover, board size, independent directors on its decision to divest, and performance evaluation model and the multiple linear regression model are constructed to evaluate the relationships between ownership concentration, managerial ownership, independent directors scale, long-term debt ratio and divestment performance of listed corporations. Based on the information of corporate governance, divestment business and related financial data of listed corporations,258 divesting samples and 293 non-divesting samples are chosen, and with the use of Logistic regression analysis, factor analysis, multiple linear regression analysis, data are processed and model assumptions are tested in the empirical tests. Through the above research, this dissertation draws the following three basic conclusions:In the research topic one:corporate governance has a direct impact on decision to divest. The proportion of the largest shareholder, Z index, general manager turnover have a direct positive impact on the decision to divest, indicating that the higher the proportion of the largest shareholder, listed corporates are more focused on and more actively engaged in divestiture activities; The decision occurred often accompanied by manager turnover in two years before divestment, in particular a turnover of general manager or CEO. Divestment decision has a significant negative correlation with board size, indicating that the larger the board size, the more 'detrimental to the occurs of divestment. And divestment frequency and divestment decision have a significant positive correlation, indicating that more times listed corporates in the past were divested, more experience, and more likely its ongoing divestment business. The relationships of the size of the independent directors, controlling shareholders equity, managers ownerships and decision to divest are not obvious.In the research topic two:divestment may not lead to positive performance. Although the performance of listed corporates over the divestment year marked increase in the previous year, but there are different degrees of decline in the first year and the second year after divestment. There wasn't a significant increase in performance until the third year is coming, although in the fourth year also the performance has increased, but not significant. This shows that the short-term performance of listed corporates changes are not obvious after divestment, and the long-term performance changes more significantly than the short-term.In the research topic three:corporate governance has an important impact on the divestment performance. In short term, divestment and Z index have a significant negative correlation, but in the long run no significant correlation between them is found, indicating that the concentrated shareholder equity ratio is not conducive to improvement of short-term performance after divestment. In the long term the incentives and monitoring of managerial ownership will help improve the post-divestment performance, but in the short term, the relationship between them is not obvious. The supervision and guidance of independent directors are helpful to improve the divestment performance, but in short-term performance it is not significant. Supervision of corporate debts does not play a significant role to improve the performance. The correlation of divestment size, firm size aild long-term performance is not significant, but the divestment experience helps to make divestment performance improvement.This dissertation integrating these main conclusions and compared with previous studies, the main innovation of this research are as follows:Based on the perspective of strategic management and organizational behavior, we proposed the research framework of corporate governance-initiation of divestment-divestment performance to study the impact of corporate governance on divestiture decisions and concluded the ownership concentration, manager turn-over, board size, long-term debt, divestment frequency had a direct impact on the decision to divest. And the divestment performance was evaluated and we found that changes in short-term performance are not obvious, and performance improvement in long-term was more significant. Also we analyzed the impacts of corporate governance on divestment performance and found that managerial ownership, Z index, the scale of independent directors, the long-term liabilities, the divestment size-, frequency and firm size all had a huge impact on long-term and short-term performance of the divesting corporates.